The Kohler-Businessness Decision: Case Analysis: Terminal Value
For example, using a standard deviation of a highly correlated distribution of stocks that includes 3 kitchen & bath companies and 3 engine & generator companies, the Beta will decrease from 2.67 to 1.52. Then, the new WACC would be 10.40%[Table 5]. Just this difference in Beta would make the per share value of the stock go from $164K to $251K with 0 discount (due to the lack of control and liquidity), and from $ 57K to $ 88K with 65 % discount [Table 7].
Kohler is most likely using a relatively high WACC and high discount to come up with a $58K value per share. As it is shown in Table 8, using a WACC of 14.19% and a discount of 65% for liquidity and control of the stock arrives at $57K per share.
On the other hand, the dissenting Kohler shareholders have probably used a much more generous approach to the value of Kohler’s shares. It appears they could be using a WACC close to 10% and not discount (liquidity and/or control) or a WACC of 8% and 30% discount to arrive at their $273,000 value per …show more content…
Specifically, by using his confidence levels (likelihood of winning vs. losing) in context with payout possibilities, a weight adjusted value can be derived for assessing an alternative settlement price [table9]. Using a simple binomial approach for calculating a theoretical settlement value provides an understandable and defendable approach for countering the dissenter’s initial offer. To help support the counter offer further, a secondary and unrelated method for valuing shares can be used as a comparable. In this case, using book value per share gives a comparable that supports the confidence weighted counter offer [table10] as being more favorable for the